Martha estimates that the fixed costs associated with opening her new hair salon are $100,000. She expects the salon to attract 500 new customers in the first year, each of which will cost $25 to service. Martha expects to generate $50,000 per year in revenue. For Martha, the total cost of opening her hair salon and staying in business for one year would be a) 50,000 b) 87,500 c) 100,000 d) 112,500 e) 150,000
Business · High School · Wed Jan 13 2021
Answered on
Let's break down the costs for Martha's hair salon:
Fixed Costs (FC): $100,000 (These are the costs that do not vary with the number of customers.)
Variable Costs per Customer (VC): $25 (These are the costs that vary with the number of customers.)
Number of Customers (N): 500
Total Variable Costs (VC): VC per customer * Number of customers
Total Variable Costs (VC) = $25 * 500
Total Variable Costs (VC) = $12,500
Total Costs (TC): FC + VC = $100,000 + $12,500
Total Costs (TC) = $112,500
So, the correct answer is: d) $112,500